Labor’s own warn against super attack

Former superannuation minister Nick Sherry suggests cuts to military and public sector super.
Photo: Michele Mossop

by
Gemma Daley

Two important Labor figures in the development of the superannuation system have warned the Gillard ­government against increasing super taxes and suggested other changes, including cuts to generous public service super, as better ways to raise revenue.

Nick Sherry
, superannuation minister from 2007 to 2009, said the existing tax arrangements, which exempt withdrawals and have attracted billions in savings, shouldn’t be changed.

Reintroduce complexity

The government may pare back tax concessions, and may tax ­withdrawals by individuals with accounts of at least $800,000 and $1 million. The concessions will cost more than spending on the age pension by 2015-16.

Former Liberal federal treasurer
Peter Costello
said the changes would reintroduce too much complexity into the super system, punish savers and create uncertainty.

Mr Sherry said there were areas within the super system that require attention. He cited the retirement access age for super, now 60, should be raised to the pension access age that will climb to 67 in the next decade. The so-called transition to retirement that allows people to work part-time and draw down their super at the same time should move in the same increments, he said.

“The indirect policy response of those two policy changes would be to constrain to some degree the growth of super tax expenditures, and that’s the area I think governments need to focus on," he said.

Mr Sherry said the government’s contribution to military super should be cut from about 28 per cent and public sector super from 15.4 per cent.

Military super

“There’s no justification in this day and age for such a level of contribution above the community standards," he said. “You just close it to new members going forward."

Military super is a combined defined-contribution and benefits scheme.

Mr Sherry said people shouldn’t be allowed to split their super with a spouse who earned less.

“That’s inappropriate in today’s system and doesn’t exist in any other system – it’s something you can’t justify in current parameters," he said.

“These changes would save hundreds of millions of dollars initially and those savings would grow over time."

Superannuation will become the largest tax concession in 2014-15, totalling $40.2 billion, the latest tax statistics show.

As the government collects less tax as a proportion of the economy, the impact of super concessions increases. “The growth of expenditure in super was significant – that would be of interest and concern to any government," Mr Sherry said.

Designed for middle australia

“That growth is just for any future government difficult to sustain. It doesn’t matter whether it’s Liberal or Labor."

“This is not to say that those on 50 per cent or 75 per cent of AWOTE [average weekly ordinary time earnings] should not benefit equitably from the super provisions. They should. But for middle Australia – the SG and salary sacrifice is the way forward," he told the Association of Superannuation Funds of Australia.

“At an SG of 12 per cent and broadly tax arrangements as now, someone on one times AWOTE to two times AWOTE plus more generous salary sacrifice limits – should be able to secure a replacement rate in retirement income of around 70 per cent over a 35-year working life."